volcker

Washington politics seems like it may be leaving Paul Volcker, White House economics advisor, a little less upbeat. A couple weeks ago, he was “more optimistic” than he had been that a financial reform bill would pass this year. Today, at a talk to the Levy Economics Institute he said only that he was hopeful that useful structural reform will pass.

Mr Volcker criticised those in the financial community who “bitterly fighting” credit default swap regulation. They were, he said, “pushing back against what seems to be reasonable protection against the next crisis and its effects,” saying there should have been some “better” and “more expeditious way” of dealing with the problem of AIG’s CDS-fueled collapse.

The unnecessarily acrimonious CDS fight isn’t Washington’s only problem. Mr Volcker also lashed out at the politics that – 15 months after inauguration and in the midst of an economic crisis – have left the Treasury without permanent replacements for the two top finance posts: under secretary for domestic finance and under secretary for international affairs. “There is something the matter in Washington,” said Mr Volcker. Read more

The architect of the so-called ‘Volcker rule’ called Lord Turner “extremely sophisticated” and “thoughtful” and urged participants at a Peterson Institute for International Economic to read his “very closely reasoned” speech on financial reform. He praised the analysis, which was highly skeptical of the benefits of financial services.

He later referred a question on potential downside to the Volcker rule – which would ban proprietary trading at commercial banks – to Lord Turner’s analysis. “He says some liquidity’s good, but at some point let’s stop its growth.” Mr Volcker then concluded that there would be no negative impacts from the ban.

The Senate banking committee briefly broke into rumblings about 20-somethings with clever ideas being able to subvert the intent of Congressional laws on complicated banking matters.

It’s no reason not to pass legislation to ban proprietary trading, Paul Volcker said. “Yes, banks have 26-year-olds with a whole lot of mathematical training and all the rest, but the supervisors need to hire some 28-year-olds.”

Paul Volcker, in both his written testimony and during the question and answer period, said: “Bankers know what proprietary trading is, don’t let them tell you otherwise.”

Mr Volcker was also questioned on whether the US could learn anything from Canada, which had been able to avoid the worst of the housing crisis, a topic explored by the FT last week. Read more

In a sign of just how powerful the Federal Reserve is, Paul Volcker and Neal S. Wolin couldn’t give a definitive answer on whether the Fed could now prevent proprietary trading without Congressional action.

Mr Volcker said that the Fed could tell banks they were “conducting a particular activity in a particularly risky way” but he wasn’t sure they could “say they can’t do proprietary trading”. Mr Wolin said that in any case, it shouldn’t be left up to the discretion of the regulator. Read more

How hard will Chris Dodd, who’s on his way out of the Senate, push for the Shelby rule? It’s not clear. Mr Dodd, like ranking member Richard Shelby, expressed frustration at the end of the hearing that the ‘Volcker’ rules hadn’t been proposed earlier. He wants to pass a bi-partisan bill, he said, and some of the last minute changes made getting Republican support more difficult.

I don’t want to go to the floor of the United States Senate begging for a sixtieth vote. I’m not going to do that.

ORIGINAL POST (from 20:31):

Chris Dodd, chairman of the Senate banking committee, says he ‘strongly’ supports the ‘Volcker’ rules, which would prohibit commercial banks from engaging in proprietary trading.

But (shock of shocks) there was no initial bi-partisan consensus. Richard Shelby, the Republican ranking member, said he’d consider the proposal, but he was “quite disturbed” that the administration had waited so long to introduce it. Read more

Questioned on whether the “Volcker rule” would have, by itself, prevented the financial crisis, Paul Volcker said that it would not have, but its goal is to prevent future crises.

“I tell you sure as I am sitting here that if banking institutions are given free rein and allowed to speculate however they want to, I don’t know if I’ll see the crisis, but my soul is going to come back and haunt you.”

The European Central Bank’s response to Barack Obama’s bank reform proposals is taking shape. Speaking in Milan, Lorenzo Bini Smaghi, an ECB executive board member, confirmed Frankfurt’s view that the proposed “Volcker rule” – splitting traditional banking activities from high-risk proprietary trading operations – was “heading in the right direction”. It also represented “a first step to ensuring the financial system can effectively support the real economy and is not weakened by the most volatile market fluctuations”.

But Mr Bini Smaghi worried, first, that such a step might simply drive the higher risk trading operations beyond the control of regulators. Read more

Jobs data looks healthy in Brazil and the square mile, but less rosy for manufacturing workers and journalists, although wage data may be good for those employed, whatever the sector. Commodities are ever more popular and gold could surge if China bans exports Read more

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Chris Giles has been the economics editor of the Financial Times since 2004. Based in London, he writes about international economic trends and the British economy. Before reporting economics for the Financial Times, he wrote editorials for the paper, reported for the BBC, worked as a regulator of the broadcasting industry and undertook research for the Institute for Fiscal Studies. RSS

Claire Jones is the FT's Eurozone economy correspondent, based in Frankfurt. Prior to this, she was an economics reporter in London. Before joining the Financial Times, she was the editor of the Central Banking journal. Claire studied philosophy and economics at the London School of Economics. RSS

Robin Harding is the FT's US economics editor, based in Washington. Prior to this, he was based in Tokyo, covering the Bank of Japan and Japan's technology sector, and in London as an economics leader writer. Robin studied economics at Cambridge and has a masters in economics from Hitotsubashi University, where he was a Monbusho scholar. Before joining the FT, Robin worked in asset management and banking. RSS

Sarah O’Connor is the FT’s economics correspondent in London. Before that, she was a Lex writer, covered the US economy from Washington and the Icelandic banking collapse from Reykjavik. Sarah studied Social and Political Sciences at Cambridge University and joined the FT in 2007. RSS

Ferdinando Giugliano is the FT's global economy news editor, based in London. Ferdinando holds a doctorate in economics from Oxford University, where he was also a lecturer, and has worked as a consultant for the Bank of Italy, the Economist Intelligence Unit and Oxera. He joined the FT in 2011 as a leader writer. RSS

Emily Cadman is an economics reporter at the FT, based in London. Prior to this, she worked as a data journalist and was head of interactive news at the Financial Times. She joined the FT in 2010, after working as a web editor at a variety of news organisations.
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Ralph Atkins, capital markets editor, has been writing for the Financial Times for more than 20 years following an economics degree from Cambridge. From 2004 to 2012, Ralph was Frankfurt bureau chief, watching the European Central Bank and eurozone economies. He has also worked in Bonn, Berlin, Jerusalem and Brussels. RSS

Ben McLannahan covers markets and economics for the FT from Tokyo, and before that he wrote Lex notes from London and Hong Kong. He studied English at Cambridge University and joined the FT in 2007, after stints at the Economist Group and Institutional Investor. RSS